By Amy Willis
“You don’t have to know anything about tier 1 capital to know something’s rotten…”
The ratio of the financial industry’s profits to its percentage of the overall economy has increased dramatically in recent decades, and has been pointed to by many as a cause for concern. That theme holds in this EconTalk episode, in which host Russ Roberts welcomes Rana Foroohar of the Financial Times to discuss her book, Makers and Takers: The Rise of Finance and the Fall of American Business. While Foroohar and Roberts don’t necessarily agree on the solution, both are adamant about the problems this trend poses.
1. What does Foroohar mean when she says the financial sector has gone from “greasing the wheels of Main Street capitalism” to becoming “the game in and of itself?”
2. Both Foroohar and Roberts bemoan the current cozy relationship between Wall Street and Washington, and to some extent, each agrees that the government’s response to the 2008 financial crisis was necessary. But why does each think it was necessary, and how do their views on why characterize each’s thoughts on the best way(s) to discipline the financial industry going forward?
3. How might it be possible for it to become culturally more difficult for bailouts to occur in the future? What would such cultural change look like?
4. What does Foroohar mean when she says, “What we have now is not something Adam Smith would recognize as a free market.” What does she suggest as a solution to improve the financial markets for the benefit of the larger economy, and to what extent do you agree with her prescriptions?